The cryptocurrency phenomenon continues with its mind-boggling volatility and millions of dollars gained and lost on a minute by minute basis.

Despite recent setbacks, Bitcoin and other cryptocurrencies have enjoyed significant appreciation since their initial offerings. But is this sudden rise a true indication of crypto’s value?

The Advantages Of Gold Over Bitcoin

Although with luck you may pick a “crypto winner,” I believe gold is a far more useful asset than cryptocurrency.

Here are a few reasons why:

1) A vast majority of cryptocurrencies will fail.

The current rise in cryptocurrencies can be compared to the stock market’s dot.com bubble that burst in the year 2000.

A few internet companies like Amazon and Google survived; the rest failed. It is probable the same is true of cryptocurrencies.

Assuming governments don’t eventually create their own digital currencies, only a few, if any, current crypto offerings have a chance to survive and be profitable.

2) Cryptocurrencies have a lack of security.

Security is a major issue facing the cryptocurrency industry.

There are all too frequent major hacks involving a crypto exchange. With security issues surrounding cryptocurrencies not fully resolved, their ability to compete with gold or traditional investments is limited.

3) Speculation and hype are driving the value of cryptocurrencies.

Since the beginning of 2017 cryptocurrency values have skyrocketed. But this irrational spike in crypto prices suggests this is no more than a bubble.

Most individuals buy them for the sole reason of selling them in the future at a profit. This is pure speculation, not hedging.

Compared to gold, the price of cryptocurrencies is much more volatile, making them a shaky financial hedge. [Chart: Valuewalk]

It’s a dubious bet to use such a volatile form of currency as a hedge against fiat currencies or inflation.

4) Cryptocurrencies are surprisingly similar to fiat money.

The definition of fiat money is a currency that is legal tender but not backed by a tangible commodity.

This has been the case with all major currencies, including the U.S. Dollar, since the United States abandoned the gold standard in 1971.

It’s clear that cryptocurrencies partially fit the definition of fiat money. They may not be legal tender yet, but they’re also not backed by any sort of physical commodity.

Logic suggests that you can’t hedge against a fiat currency with another form of fiat currency.

5) Gold is liquid; cryptocurrencies are not.

Gold is one of the most liquid assets available. It is easily converted to cash and its value is not restricted by national borders.

The same cannot be said about cryptocurrencies. It’s ironic–as speculation in cryptocurrenices skyrockets, so have the fees to transact in them or convert out of them.

For example, according to BitInfoCharts.com, Bitcoin’s transaction fees have vacillated wildly from a low of $0.68 per transaction this time last year to $55.00 per transaction in late December.

Currently, the rate is $5.00. The fee is fixed no matter how much you spend.

Obviously, these rates are not conclusive to retail transactions. As a result, retailers who were accepting Bitcoin are now backing away from it.

Liquid, Bitcoin is not.

6) Cryptocurrencies do not have gold’s history as a store of value.

While cryptocurrencies have been around for less than a decade, gold has been a store of value for thousands of years.

Over time we’ve seen that stocks and bonds have a minimal or negative correlation with gold, particularly during recessions, making gold a sound hedge against inflation, recession and fiat currencies.

In 2017 a rising stock market went hand in hand with rising cryptocurrency prices. In recent days, sharp drops in the stock market and crypto market were nearly simultaneous.

All this suggests a lack of hedging value in the cryptocurrency market.

Cryptocurrencies Are No Substitute For Gold

The purpose of this article has not necessarily been to criticize cryptocurrencies.

We suspect that a limited number will do very well over time as the technology they represent has a bright future.

This article is simply meant to dispel the notion that cryptocurrencies can somehow replace gold in a 21st century portfolio. The simple answer is they can’t.

As our planet’s precious metal reserves tap out, big business and NASA are looking to the skies. The race to mine asteroids swirling around our solar system is on.

Space mining may sound like science fiction, but it’s real, and big developments are planned in the next decade.

Why mine asteroids for metals

Asteroids are essentially massive rocks that orbit the sun, and many are thought to consist of gold, platinum, iron and other useful metals.

A single mile wide asteroid could contain many times the Earth’s annual mining output of gold and platinum, according to recent research conducted by the Massachusetts Institute of Technology.

Conventional wisdom may be that going to space to bring back what is needed on Earth is not economically feasible.

Not necessarily so, analysts insist.

Asteroid mining could lower price of metals

A recent Goldman Sachs report states that “while the psychological barrier to mining asteroids is high, the actual financial and technological barriers are far lower.”

Proponents say before long robots could be traveling to asteroids to extract gold, platinum and other valuable metals to haul back to Earth.

A 2012 Cal Tech study suggests that it could cost $2.6 Billion to capture an asteroid and bring it into orbit near the earth, making human exploration and robotic mining that much easier.

The study also predicts the eventual result would be far lower costs, stating, “Successful asteroid mining would likely deflate the price of any metals successfully mined and returned to Earth.”

Current & future asteroid explorations

In 2016 NASA launched the OSIRIS-REx spacecraft on a seven-year mission to a carbonaceous asteroid named Bennu.

The spacecraft will map the asteroid for over a year and then move in close to allow a robotic arm to extract several ounces of material to return to Earth for analysis.

The OSIRIS-REx spacecraft is currently on a mission to an asteroid named Bennu. A robotic arm from the spacecraft will extract a small sample of material to bring back to Earth for study. [Image: NASA]

NASA also plans to launch a robotic mission within the decade sending the devices to explore asteroids near Mars and Jupiter. This mission is scheduled to launch in 2022 with a planned arrival at an asteroid known as 16 Psyche by 2026.

16 Psyche is supposedly a massive hunk of precious metals including gold, platinum, iron and nickel. Its potential value in the quadrillions of dollars has grabbed the attention of numerous entrepreneurs and investors.

Asteroids offer rich opportunities

What gives asteroid Psyche great interest is that it is made of exclusively metal.

Every world explored so far by humans (except for gas giant planets such as Jupiter or Saturn) has a surface of ice or rock or a mixture of the two.

Because we cannot see or measure the Earth’s core directly, asteroid Psyche and others offer a unique window into the violent history of collisions that created terrestrial planets.

It also may offer entrepreneurs and investors the opportunity of a lifetime, mining precious metal rich asteroids.

Hundreds of years ago, early economists were puzzled by a quirk in pricing: why do some non-essential goods cost so much while truly essential goods cost so little? As an example, why are water and grain so cheap when they are so vital for human survival? Why are gold and diamonds so expensive when neither is a necessity?

Scarcity & Value

The answer is quite simple. All economic based commodities are scarce to some degree. All things being equal, more scarcity = more value. There is a lot of water in the world, but not much gold. Both have significant value but for different reasons. Simply stated, it’s easier for most people to access fresh water than to mine an ounce of gold.

Why Gold is Valuable

Gold is valuable for many reasons, but its relative rarity is one of the most important. In fact, gold is so scarce we might be running out. The notion that the world may be running out of mineable gold recently appeared in a Wall Street Journal article discussing the failed Barrick-Newmont gold mining merger. The author begins the article by stating: “The big dilemma for gold miners; there ain’t much gold left.” He’s correct. The lack of readily mineable gold is making life tough on mining companies worldwide. My only issue with the aforementioned article is that the author doesn’t seem to note the significance of running out of the world’s most famous precious metal.

Gold is Increasingly Harder to Find

The article goes on to say that, at current mining levels, we are only 20 years away from completely exhausting all of the discovered gold mines in the world. All of them. That isn’t to say that more gold can’t be found; it just isn’t common to find new pockets of the yellow metal. This has become more and more evident since the boom in global demand for gold over the last 25 years.

As the global demand for gold has increased, gold discoveries have decreased dramatically over the past decade, putting us at risk of running out of mineable gold within the next 20 years. [Image: GoldCore]

Numerous mining publications track the discovery of new precious metal reserves, including gold. Most industry sources agree that new gold deposits can be categorized as ‘major’ or ‘significant’ by containing an estimated 2 million ounces of mineable fine .9999 gold. Industry sources agree that 22 ‘major’ deposits were discovered in 1995, 6 in 2010, 1 in 2011 and none from 2012 to 2015. The decline is unmistakable.

The Future of Gold Mining

While there are estimates that there could be substantial quantities of gold beneath the Arctic Circles, the cost would be extremely prohibitive with gold at or near current levels. There also may be large pockets of molten gold near the earth’s core. However, it’s a safe bet we won’t be mining that anytime soon. Data suggests that gold production seems to have peaked around the year 2000 and has averaged an annual decline of approximately one million ounces since. Many speculate the next great gold deposit will likely to come from mining an asteroid! A topic for a future blog.

Gold’s Long-Term Outlook

Gold has always been a good long-term store of value, but in the long run it may prove to be a better one. The demand for gold was at an all-time high from 2008-2013 and the current trend of decreasing supply could increase its value in the medium to long term.

Remember, gold’s relative scarcity contributes to its value. It’s Economics 101: the more demand for a commodity, the more valuable it will be; the less supply of a commodity, the more valuable it will be. Gold could have both of those factors going for it in the medium to long term.

Despite criticism from the left, he knew the notion was sound at both the domestic and international level, an idea consistent with the political philosophy of Thomas Jefferson.

Mr. Kemp hoped that by linking the U.S. Dollar to gold, the U.S. could establish a new position of world leadership. He felt a return to the gold standard would lay the groundwork for a restructured international financial community consistent with our values of economic freedom and personal responsibility.

Nations willing to accept a gold based currency would be effectively committing to free trade and economic opportunity based on a level playing field. No longer would fluctuations in fiat currencies undermine competition and free markets worldwide.

Congress’s Role in Regulating Currency

Congress is empowered through the Constitution to “regulate” the value of money. Notably, that power is explicitly granted in terms of authorizing the right to “coin” money, not print it.

The duty of Congress was to define the U.S. Dollar in terms of a specific weight of gold or silver. Thomas Jefferson proceeded to do so, writing in 1784: “If we determine that a Dollar shall be our monetary unit, we must then say with precision what a Dollar is.”

By 1792, the value of the Dollar was fixed through the Coinage Act at 371.25 grains of pure silver or 24.75 grains of pure gold.

Furthermore, Mr. Jefferson argued that it would be a violation of the Tenth Amendment to empower the government to issue “bills of credit” to be accepted as legal tender.

Why The Gold Standard Matters to America

The need to provide a stable monetary foundation for domestic growth as well as forging an international monetary foundation devoted to free markets was the gold standard rationale often invoked by Mr. Kemp.

“Gold convertibility may not be fashionable,” he noted in remarks before the Atlanta Federal reserve in 1982, “but I am convinced that it is imperative, for the simple reason that if we do not remonetize gold, the international market could demonetize our dollar.”

Mr. Kemp had the foresight to comprehend that America’s leadership in the world should not be taken for granted. It requires us to adhere to core principles of integrity, which includes the reliability of our own monetary standard.

As Mr. Kemp affirmed in a 1988 presidential campaign speech, “I am a radical believer in the idea that the U.S. Dollar should be so honest, so sound, so trustworthy, so good, so predictable, so lasting in value, that it’s as good as gold.”

Championing the cause of the gold standard was more than good politics, though. It was a matter of commitment to the highest ideals of a nation dedicated to growth and opportunity.

From Mr. Kemp’s perspective, the dependability of the U.S. Dollar reflected the destiny of our country. He believed the U.S. Dollar should be as honorable and steadfast as the American idea itself.

Donald Trump’s policy agenda, and his very presidency, are in jeopardy…at least if you believe all the chatter from the left-leaning “mainstream” media.

For weeks now, the big media outlets have been stirring up talk of impeachment. One story after another dealing with the likes of James Comey, Jared Kushner and Vladimir Putin are behind the impeachment talk despite the lack of concrete evidence of “high crimes and misdemeanors.”

Still, Democrats in Congress smell blood in the water, and they have readied articles of impeachment for introduction as soon as an opportunity presents itself.

Impact of a Trump Impeachment on Markets

But investors don’t seem particularly concerned about the implications of intensifying political turmoil in Washington.

The traditional safe-haven of gold is up modestly on the year but has yet to see any major sort of panic buying.

Precious metals markets so far have not been affected by the possibility of a President Trump impeachment or resignation. [By Gage Skidmore from Peoria, AZ, United States of America (Donald Trump) [CC BY-SA 2.0], via Wikimedia Commons]

Perhaps investors do not believe the Trump presidency is at risk…or perhaps they don’t think it matters if Trump gets pushed out of office.

How Markets Have Been Affected By Past Presidential Scandals

Consider the recent history of presidents who have gotten themselves into trouble.

President Nixon resigned in August of 1974 with gold trading at $152.00 an ounce. Gold began that year at $117.00 and finished at $195.00 per ounce.

Nixon’s resignation occurred within a year-long rally and does not seem to have altered its trajectory.

Closure of Gold Window Had Bigger Effect

Far more significant than Nixon’s resignation was his decision in August of 1971 to close the gold window.

From that point on the U.S. dollar would be a fiat currency with no link to gold.

The resignation of President Nixon had little effect on the economy compared to his decision to close the gold window.

As a consequence, inflation fears began to build, slowly at first, but then manically by 1980 with gold prices spiking to $850.00 an ounce.

The Watergate scandal that made Nixon infamous did not really have anything to do with how precious metals performed in that era. The real Nixon legacy is what happened to the dollar after he ended its ability to be redeemed in gold, the consequences of which are still playing out.

Gold Stable During Clinton Impeachment

Contrary to popular misconceptions, Nixon was never impeached. But Bill Clinton was.

The House of Representatives initiated articles of impeachment against President Clinton in December of 1998. However, in February of 1999 the Senate voted to acquit Clinton and leave him in office.

Around that time gold prices were in a long bottoming out process after having been in a bear market since January 1980. From the time Clinton was impeached to his acquittal, gold essentially did nothing but remain stagnant in the $290.00 range.

The bottom line is that political turmoil, in this case a possible Trump impeachment or resignation, does not necessarily translate into market turmoil or even a detectable reaction.

But major policy changes can have significant short term and long term effects on precious metal markets.

Here at Jack Hunt Gold & Silver we are frequently asked about the pricing and availability of “fractional” gold coins. By definition, fractional gold coins are bullion coins that weigh less than one troy ounce.

Types of Fractional Gold

The most popular fractional gold coins are the U.S Gold Eagles which, in addition to the popular one ounce unit, is also available in half, quarter and tenth ounce sizes.

The Royal Canadian Mint issues its popular Maple Leaf gold coin in half, quarter, tenth and twentieth ounce sizes along with the ever popular and liquid one ounce “Maple.”

The popular U.S. Gold Eagle and Canadian Maple Leaf gold coin are available as fractional gold, weighing less than one troy ounce.

Numerous other countries and mints issue fractional gold coins. However, the U.S. and Canadian pieces dominate the world marketplace, so we strongly suggest focusing on them.

Benefits of Fractional Gold

So what are the advantages of fractional gold? The first advantage is flexibility/liquidity.

That is, if and when the time comes to sell gold for cash, you can sell the unit of gold most reflective of your cash needs. You may only need $400 for an unexpected expense, so why sell a full ounce of gold for $1,250 when a quarter ounce or a half ounce makes more sense?

For those of you who feel gold may someday be used as a currency for barter or trade, common sense tells us a smaller fractional gold coin may be more practical than the traditional one ounce coin. An analogy I frequently use is that whereas a tenth ounce gold coin might yield an adequate amount of beef and milk in trade, the one ounce piece may force you to take the whole cow.

A one-tenth oz Gold Eagle coin, worth approximately $150, is a popular choice for a gift.

A second advantage of fractional gold is that they’re more appropriately priced for gift giving. I know of far more scenarios where a tenth ounce ($150 or so) or a quarter ounce (approximately $350) gold coin is more appropriate for gift giving than a $1,300+ one ounce gold coin.

A third advantage of fractional gold is similar to the aforementioned second advantage: cost. Even though one ounce gold bullion is far and away the most frequently traded size of gold, many investors don’t want to spend $1,300+ on gold at any given time. Fractional gold coins are not only cheaper for gift givers but for investors as well.

Why Not To Buy Fractional Gold

Unfortunately, there are several reasons not to buy fractional gold and those reasons revolve around cost.

Very simply, the smaller the unit of gold, the more it costs per ounce. It costs a refiner/mint more to fabricate ten tenth ounce coins than the equivalent one ounce coin.

As an example, using a hypothetical gold ‘spot’ quote of $1,250 ten tenth oz. gold Eagles would cost approximately $1,500 factoring in the higher fabrication charges. A one ounce gold Eagle, with the same net gold content, would cost approximately $1,330 due to its lower fabrication related fees.

Another factor is sales tax. In many states, including New York, the sale of gold bullion weighing less than one ounce is generally subject to state and local sales taxes unless you spend a minimum of $1,000 or more on bullion.

Many states conveniently feel that fractional gold is not bought for investment purposes but only as jewelry or as a gift and therefore should be taxed. To save nearly 9% in sales taxes, we urge you to combine smaller transactions into a larger transaction to legally avoid sales taxes.

Is Fractional Gold Right For You?

The ultimate decision is yours, of course.

If your motivation for buying gold is for gift giving or future barter or trade purposes, the added expense of fractional gold may well be worth it.

If you’re buying gold as either an investment or inflation hedge, then one ounce units with their most attractive buy/sell “spread” may be the more logical option.

Normally, when individuals sell gold or silver they must pay capital gains on any increase of the value of their precious metal investments.

However, many consider precious metals, especially gold and silver, to be a form of currency, not an investment in the traditional sense.

It seems that lawmakers in Idaho and Arizona have now realized that their citizens shouldn’t have to pay taxes on their precious metal holdings simply because of the Federal Reserve’s questionable dollar related philosophies.

Gold & Silver Moving Toward Role As Currency

So now we have two states in the last few weeks that have passed bills removing capital gains tax on gold and silver. The Arizona and Idaho legislation is a noteworthy step towards the reintroduction of precious metals in their rightful role as both real money and as a high quality storehouse of value.

Idaho and Arizona lawmakers recently voted to eliminate capital gains taxes on gold and silver trades, helping to move the precious metals toward their role as currency, rather than investments. [Image: Tenth Amendment Center]

In 2011 the state of Utah was the first state in 80 years to pass a bill that made gold and silver legal tender once again. Thus, citizens in Utah are legally allowed to use silver and gold to pay either taxes or for goods and services if both parties agree.

But what’s even more interesting is that Utah just recently introduced a bill for a State Gold Repository. This bill would build on the state’s Legal Tender Act, creating a foundation for further action to encourage the use of gold and silver as money.

This would be still another step toward breaking the Federal Reserve’s monopoly on money. The legislation would add several key provisions to the state law designed to encourage the use of gold and silver as legal tender.

Passage would set the stage for the expansion of gold repositories in the state and authorize further study on numerous sound money policies. Specifically, this bill authorizes the investment of public funds in specie (coins with precious metal content) legal tender held in a commercial specie repository.

Demand For Gold & Silver Will Increase When Dollar Falls

As I write this, we now have three states encouraging the use of gold and silver as real money. Not only does this legislation help to reintroduce gold and silver as sound money, it also sets the stage for new depositories across the states to house citizens’ precious metal holdings.

Granted, there are only three states onboard with plans equating precious metals with currency. However, I believe that this is just the start for numerous other states to follow suit. The dollar will eventually tumble due to massive monetary printing and staggering debt.

Americans are hopefully preparing for what may be on the horizon. Precious Metals are currently being valued in a manipulated highly leveraged gold and silver paper trading market, a system that cannot last forever.

When the paper markets finally crack under the massive weight of debt and derivatives, there will be a mad rush of investors looking for gold and silver. The overall demand for tangible assets will lead to shorter supplies and higher prices for precious metals.

Here’s a stunning video that provides visual context of the massive scale of our National Debt. The United States owes a lot of money. As of 2017, US deficit is larger than the size of the economy. Currently there is no debt ceiling, it has been suspended. To see current debt live visit US Debt Clock.

Grant Williams’ presentation from Mines & Money in London in December 2016. A follow-up to Nobody Cares which focuses on gold’s performance in 2016, the reaction to Donald Trump’s election and joins a series of dots that may lead to the end of the petrodollar system and a new place for gold in the global monetary system.

Government bureaucrats, central bankers, and Wall Street executives all have reasons for ridding the masses of their cash. It should be no surprise to anyone that they are working together to achieve that goal. But why? The self interest of bureaucrats is one factor, they don’t like privacy. They dream of the day when they can access all your financial information with just a few keystrokes. The knowledge will help them more aggressively tax and regulate.

Central bankers have a different motivation. Their policy of preference is NIRP….Negative Interest Rate Policy. Bankers in Switzerland, Sweden, Denmark and Japan have already launched NIRP. Their counterparts elsewhere, including the U.S., are planning for it. The plan is to create an environment where customers must either spend their savings or pay their bank interest to hold deposits. For this to work the government must coerce the masses into turning their cash into electronic money. Otherwise everyone will just withdraw their cash over time and literally hide it under their mattresses. When you have to pay a bank say, 1% to access your money, holding physical cash gives you a better return (0% vs. –1%). Those of you convinced that the Fed is set on higher long term interest rates should note the following: History shows that economic downturns/recessions lead to lower interest rates. With current rates near historic lows it’s not difficult to imagine a negative interest rate scenario. Already, U.S. banks are making it more difficult to withdraw cash. Most banks only keep nominal amounts of cash on hand and then make you jump thru hoops if you attempt to withdraw any quantity of consequence.

Do we take it for granted that we can keep physical cash? Photo Chance Agrella

Bankers are drooling over the profit potential for all transactions to be done electronically. They stand to rake in processing fees every time you use a card or cell phone for purchases as opposed to using cash. In a cashless society bankers will gain a larger customer base, as the public will no longer have the option of holding currency outside the banking system.

The public needs to remember the true reasons that the powers that be want to eliminate cash from circulation. You can be assured that politicians and bankers won’t be truthful as to their reasons for eliminating cash. Wall Street wants you to focus on the convenience of electronic payments. Bureaucrats are preoccupied with stigmatizing cash as a tool for drug dealers, tax cheats and terrorists.

If the public ultimately loses the ‘War on Cash’ here are some likely ramifications for precious metals investors. Negative interest rates should drive significant demand for gold and silver. NIRP is a testament to the fact that central bankers will try literally anything to produce inflation. Such a controversial policy should set off alarm bells for anyone who isn’t concerned about inflation, or who may be betting on deflation. If central bankers want inflation, they have the power to create it. As always, inflation fears will drive demand for physical bullion.

While politicians and bureaucrats can theoretically win the ‘War on Cash’ because they have complete control over the issuance of paper money, they cannot win a war on bullion. Physical bullion is private and ‘under the radar’, a nightmare for regulators.

If politicians attempt to tax and regulate precious metals they are likely doomed to fail. Gold confiscation had only marginal success in 1933 when the U.S. population consisted of approximately 85 million obedient patriots. A similar confiscation attempt today in our country of 325 million diverse individuals would likely be a logistical nightmare at best and chaos at worse.

Politicians and their allies in the banking industry aren’t likely to eliminate the masses desire, or ability, to transact privately using barter instruments such as gold and silver bullion. The drive to eliminate cash will inevitably push the public into cash alternatives, most notably precious metals.